4 Things You Should Know about Homeowners Insurance

If you’re a homeowner, you know you need homeowners insurance coverage — but what do you REALLY know about it? Are you spending more than you need to or are you inadequately covered? Often, you could make a few small changes to your policy or how you put in claims to save considerable money over the course of the year. Here’s what you should know about homeowners insurance.

You Might Have More Coverage Than You Need

Many homeowners insurance policies increase your coverage amount automatically each year to adjust for inflation. Most of the time, this is probably a necessary expense. With the value of homes falling, increasing homeowners insurance protection may end up giving you more coverage than you need, and therefore cause you to pay higher prices than you need to in order to cover your home.

You can save about 10% of your insurance premium by lowering your replacement value around $50,000. Take a look at what your coverage is and adjust it to a more realistic value based on the current housing market.

Loyalty Doesn’t Pay as Much as Being a New Customer

During the recession, insurers have steadily been raising their homeowners insurance rates to compensate for the large losses they’ve experienced. They’ve also been focusing on enticing new customers by offering better deals and rates for new customers over their existing ones. Where loyalty used to pay in the form of loyalty discounts and offers; now it seems becoming a new customer of a company is going to give you the better deal.

When it comes time for your homeowners policy to renew, do some comparison shopping for quotes to see if you would get a better deal by becoming a new customer of a different company. Good places to start looking for homeowners insurance quotes online include our home insurance search tool and InsureMe.com. When getting quotes, see what kind of rates you can get for your automobile insurance policy and/or life insurance, too, since most companies offer multi-line insurance discounts which can reduce your total insurance premiums as much as 15%.

Don’t File for Every Small Claim You Have

If you put in a homeowners insurance claim every time you break a window or have a leaking pipe, you’re going to cause your insurance premiums to increase as much as 10% or 15%. If you make several inquiries to your homeowners insurance, even without actually filing a claim, your insurer might flag your account as being higher risk, according to some experts! Instead of filing an insurance claim for every little mishap around the home, choose a higher deductible on your policy and keep money in an accessible savings account for minor maintenance issues.

A higher deductible will lower your homeowners insurance premium, which will help you afford the small claims out of pocket. For example, increasing your deductible from $500 a claim to $1,000 will often lower your insurance premiums as much as 25%, according to the Insurance Information Institute. The savings in your annual policy premium would easily help you replace a broken window or leaky pipe here or there without having to put in a claim and increase your total cost of insurance.

Your Previous Claims Cost You

When you apply for loans or credit, the potential lender will check your credit score and view your credit history to see whether or not you are a low enough risk to extend money to. When writing homeowners insurance policies, insurers check information about you in the Comprehensive Loss Underwriting Exchange database, or a similar national database, to see how often you put in homeowners claims. Just like your credit report can contain errors, the databases for insurance claim information can also contain errors.

You can visit Choicetrust.com to check information on your insurance report and make sure there are no mistakes. You can do this for free if you’ve been denied homeowners insurance, or $19.50 if you just want to check it but haven’t been denied coverage.

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Leave Your Comment (3 Comments)

As an insurance agent, I agree with most of the advice provided in this article. However, there’s a few points that need clarification, especially the distinction between a home’s replacement cost and its dwelling coverage limit.

Insurance companies set premiums based on expected claim payouts. On a homeowner’s policy, the expected payout after a total loss is the home’s estimated replacement cost. A home’s coverage limit is independent of its replacement cost and therefore doesn’t influence the policy premium significantly. At my company, increasing a home’s coverage limit has a negligible effect on premium – you’ll pay about $10/year more for every $10,000 added to your coverage limit. A $10,000 increase in replacement cost, however, will add about $50/year to your premium. With this in mind, I always recommend setting a home’s dwelling coverage 10-15% above replacement cost just to be safe in case we underestimate a home’s rebuild cost. Most customers have no problem paying an extra $50/year for the security and peace of mind.

The importance of replacement cost in insurance underwriting leads into my second piece of advice. When getting quotes, make sure to provide complete and accurate information on your home’s style and construction to the agent, as the structural details you provide will be used to estimate replacement cost. Missing/incorrect structural features can result in a replacement cost estimate that’s significantly higher or lower than the actual figure. Either scenario is bad – a high replacement cost inflates your premium while a low replacement cost could leave you short on coverage.

In addition to verifying the description of your home on a quote, take a moment to access your property records on the assessor’s website for your county. The county assessor data will almost always include a breakdown of your home’s value as the sum of land and ‘improvements’. The $ value shown for improvements is usually a good indicator of your home’s real replacement cost.

While this is a well written article that presents many good ideas on helping one save on homeowners insurance, there is one major, glaring error that I saw that should be corrected by the author. It relates to the advice given that one should, as the story stated,: “Take a look at what your coverage is and adjust it to a more realistic value based on the current housing market.”
As a veteran insurance professional, I can tell you this is completely the WRONG way to insure your home!! Except in very unusual cases, one’s coverage should be based on ‘replacement cost’ (cost to re-build and remove debris), NOT market value. While the market has gone “soft” resulting in lower home values and prices, the cost to repair or replace your home probably has not changed.

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The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

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